Mellanox Jumps 6% on Increased Q1 Outlook, CFO Transition

Shares of server computer connections maker Mellanox (MLNX) are up $3.55, or almost 6%, at $66.50, in late trading, after the company announced this afternoon, after market close, that its revenue this quarter will come in higher than the forecast it offered a month ago, as customers buy more connections at speeds of 25 billion bits per second.

In a note to clients this evening, Summit Insights Group analyst Srini Nandury reiterates a Buy rating on Mellanox stock, and a $75 price target, writing that "Mellanox is executing better than its competitors and its diversification strategy is obviously paying off."

Mellanox now sees Q1 revenue in a range of $240 million to $250 million, up from the range of $222 million to $232 million that it had offered back on January 18th, which was already above consensus at the time.

Mellanox has in recent months been the subject of an activist onslaught from Starboard Management, which owns 10.7% of the shares, and which last month sent a letter to shareholders asking them to replace the entire board of directors with Starboard’s candidates.

CEO Eval Waldman remarked that "Throughout the first quarter, it has become clear that the trends we experienced at the end of 2017 are holding firm, and customer transition from 10 gigabit per second to 25 gigabit per second Ethernet adapters is accelerating across the board."

Added Waldman,

We are particularly pleased to see that this widespread adoption of 25 gigabit per second technology covers the majority of customer categories in every major market around the world, a direct result of the strategy we have been executing on in recent years. Our investment in R&D is driving product innovation and sustainable long-term growth, and we are well positioned to capture further market share as the landscape shifts to 25 gigabit per second and beyond. In fact, Mellanox is already offering leading edge 25, 50 and 100 gigabit per second Ethernet solutions. We continue to build momentum and make progress on our financial and operational initiatives, by reducing our operating expense run rate and driving efficiencies in our business, and are confident that our focused investment strategy will continue to deliver positive results into the future.

The company said CFO Jacob Shulman has taken a job with a “pre-IPO company,” and that Mellanox is in the process of identifying a replacement. Shulman will stay on through the May earnings report.

Waldman thanked Shulman for his “instrumental role” in the company’s “solid financial foundation."

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